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Active investors and active funds aim to outperform a chosen benchmark or peer group or to meet a specific investment objective. Active funds are managed by professionals who use their knowledge and skill to analyse the chosen market and to decide where and how to invest, in line with the fund’s objectives. At Willis Owen, we offer two types of actively managed investments:
Passive investing and passive funds aim to replicate (but not outperform) the return of a particular market index. As such, passive funds do not depend on a professional making investment decisions. At Willis Owen, we offer two types of investment options which use a passive approach:
|Active Management||Passive Management|
|Approach|| Aims to outperform the market
An active manager invests in assets (such as shares, bonds) that they believe will help the investment meet its objectives.
|Tracks a specific index
Tracks a particular index and so does not depend on a manager making investment decisions.
Active managers analyse the market in order to identify and purchase assets (such as shares or bonds) that will help them meet their investment objectives.
Passive managers usually adopt one of two approaches to track their chosen index:
The replication approach
A very straightforward way to match an index. A manager buys the same shares as are in the index, in the same proportions as they are weighted in the index.
The sampling approach
A manager uses mathematical models to buy a range of securities that reflect the index. It is useful when the index is very large or complex.
|Key benefits||In-depth research and potential for out performance
Using skill to find investments that the manager believes will help meet the investment objectives.
Spreading investments across an entire index. Low costs
Lower investment charges compared to actively managed investments.
|Key risks|| Higher costs
Active management costs tend to be higher which will affect the total returns of the investment.
May underperform the benchmark
Although active managers aim to beat the benchmark, this is not guaranteed.
| Total market risk
Your investment reflects the index the investment follows, so if the market as a whole falls, the value of the investment falls too.
Index funds are designed to provide returns that closely track their benchmark index so will not outperform the benchmark.